Monitoring the Monetary System and the Flow of Capital for Forecasting the Business, Financial and Currency Cycle - and Investing in the Emerging Economies from the Euro Global Reserve Currency - on lucabindi.com

The current account surplus of the eurozone
(+3.3% of the GDP), the current account deficit of the United States (-2.6% of
the GDP), the UK (-4.4%), Canada (-3.3%), Australia (-2.7%), the reduction of
the current account surplus of China (+1.8% of GDP, it was 10.1% in 2007),
indicate the productivity growth – with respect to the remuneration of the
productive factors – and competitiveness of the first economy and a loss of
competitiveness – with the respect to the remuneration of the productive
factors – and competitiveness of the others.

The US stock markets have been growing for almost a decade, recording one of the longest expansions of the recorded history. The S&P 500 grew from a minimum at approximately 800 in January 2009 to a maximum at circa 2500 in September 2017, while the Nasdaq Composite passed from a minimum at approximately 1300 in November 2008 to a maximum at circa 6500 in September 2017 (Source: Yahoo! Finanza).

The volatility of the S&P 500 (VIX) has
signed a minimum at 9.37 in October 2017, from a maximum at 89.53 reached in
October 2008 (Source: Yahoo! Finanza). The US stock markets have reached levels of Price-Earnings ratio (the ratio between the market value of the share and the earnings per share) indicating an overvaluation with respect to the historical average of the indicator.

The Shiller Ratio is a Cyclically Adjusted PE or CAPE – according to which the earning is weighted by the average inflation of the last 10 years – has reached quota 30.70, with a mean of 16.78 and a median of 16.12 from 1880 until today. [1]The S&P 500 PE Ratio has signed quota 25.01, with a mean of 15.67 and a median of 14.66 from 1870 until now. [2]

According to a report published by the McKinsey
Global Institute in February 2015, the global debt was augmented by $57 trillion from the beginning of the
financial crisis in the fourth quarter of 2007 to the second quarter of 2014,
passing from $142 trillion (269% of the GDP) in the Q4 of 2007 to $199 trillion
(286% of GDP) in the Q2 of 2014. [3] According to the Global Shadow Banking Monitoring Report
of 2016, the total financial assets stand at $321 trillion.[4]

The strengthening of the euro indicates the
inflow of capital into the eurozone and the outflow of capital from the other
currency areas. Capital generally flees from the overvalued currency areas with
overpriced financial and real assets, for flowing into the undervalued currency
areas with underpriced financial and real assets.

It is therefore hypothesized that the eurozone
may function as a “safe haven” for the outflow of capital from the overpriced
financial markets and the overvalued currency areas thus in a turbulence.

The strengthening of the euro may render less
competitive the export from the eurozone, damaging the manufacturing industry
producing exportable goods in the eurozone – also that one of the northern core
of the eurozone.

An inflow of foreign capital into the eurozone
and the consequent strengthening of the euro currency may indicate a transfer
of financial wealth – through the asset inflation of wealth and the
strengthening of the currency that follows the inflow of capital – from abroad
to the eurozone, damaging the foreign demand of the goods imported from the
eurozone.

It is hypothesized also that the northern “core” of the eurozone will finance the credit expansion in the southern periphery for generating a wealth effect there, in order to fund the consumption on borrowed credit of the imported goods from the northern “core” of the eurozone; thus compensating the contraction of the exports towards the economies with weakening currencies.

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Conditions:

The content is offered by the author with the sole informative purpose; moreover it is exposed without any guarantee and it does not constitute any form of investment advice. Any action undertaken by the reader on the basis of the content, analysis or opinion is intended to be under the sole responsibility of the reader.

No person may have any claim of any nature and in any case arising from or in connection with the information that is provided here by the author. The amounts, flows, stocks, values and dates that are provided are intended solely for indicative purposes and the author does not warrant the correctness, the accuracy and the completeness of the information that is provided here.

For omissions, mistakes or copyrighted material you are kindly pleased to inform the author by writing to info.emerginginvest@google.com